CP13/6 - CRD IV for Investment Firms - Financial Conduct Authority

FCA 2013/xx
Financial ratios
and advance
rate
Stress analysis
Cash-flow
predictability
equilibrium. The
number of
competitive
properties coming
to market is equal
or lower than
forecasted
demand
The property's
debt service
coverage ratio
(DSCR) is
considered strong
(DSCR is not
relevant for the
construction
phase) and its
loan-to-value ratio
(LTV) is
considered low
given its property
type. Where a
secondary market
exists, the
transaction is
underwritten to
market standards
The property's
resources,
contingencies and
liability structure
allow it to meet its
financial
obligations during
a period of severe
financial stress
(eg, interest rates,
economic growth)
equilibrium. The
number of
competitive
properties
coming to
market is
roughly equal to
forecasted
demand
The DSCR (not
relevant for
development real
estate) and LTV
are satisfactory.
Where a
secondary
market exists,
the transaction is
underwritten to
market standards
The property can
meet its financial
obligations
under a sustained
period of
financial stress
(eg, interest
rates, economic
growth). The
property is likely
to default only
under severe
economic
conditions
properties are
coming on the
market and
others are in the
planning stages.
The project's
design and
capabilities may
not be state of
the art compared
to new projects
The property's
DSCR has
deteriorated and
its value has
fallen, increasing
its LTV
During an
economic
downturn, the
property would
suffer a decline
in revenue that
would limit its
ability to fund
capital
expenditures and
significantly
increase the risk
of default
improve and
return to
equilibrium. The
project is losing
tenants at lease
expiration. New
lease terms are
less favourable
compared to
those expiring
The property's
DSCR has
deteriorated
significantly and
its LTV is well
above
underwriting
standards for
new loans
The property's
financial
condition is
strained and is
likely to default
unless
conditions
improve in the
near term
(a) For The property's Most of the Most of the The property's
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